The Complexity Of Qualitative Accounting Disclosures: Managers' Choicse And Investors' Reactions

This dissertation presents two studies on the complexity of qualitative accounting disclosures. Reporting is considered to be more complex as it becomes longer and/or less readable. The first study examines investors' reactions to disclosure readability. The SEC's emphasis on the use of plain English is designed to make disclosures more readable and more informative. Using an experiment, I find that more readable disclosures lead to stronger reactions from small investors, so that changes in valuation judgments are more positive when news is good and more negative when news is bad. Drawing on research in psychology to explain this result, I predict and find that processing fluency from a more readable disclosure acts as a subconscious heuristic cue and increases investors' beliefs that they can rely on the disclosure. While I do not find that more readable disclosures directly increase perceptions of management credibility, I do find evidence of an indirect effect operating through feelings of processing fluency. In supplemental analyses, I find that investors who receive more readable disclosures revise their valuation judgments to be less extreme when they are explicitly made aware of the potential for variation in readability. I discuss potential explanations for these revised valuation judgments. The second study examines managers' reporting choices with respect to disclosure complexity. Prior research finds that the reporting complexity of qualitative disclosures increases as firm performance deteriorates, and that reporting complexity may dampen investors' short-term reactions to news. While some argue that managers intentionally increase reporting complexity to hide bad performance, others suggest that bad performance is instead simply more difficult to describe in fewer and more readable words. I use a controlled experiment to investigate these explanations, and find greater support for the idea that bad performance is inherently more difficult to describe than good performance. Counter to arguments made in the archival literature, I find that individuals provide longer, but more readable, disclosures when performance is bad and they are given a goal of reporting strategically rather than reporting accurately. This contradicts the claim that managers intentionally obfuscate poor performance in order to mitigate negative reactions to bad news. My study also provides evidence in a controlled setting on how other linguistic choices vary with performance and goals

Do Jobseekers Value Diversity Information? Evidence from a Field Experiment

We examine how information about the diversity of a potential employer’s workforce affects individuals’ job-seeking behavior, and whether workers’ preferences explain corporate disclosure decisions. We embed a field experiment in job recommendation emails sent from a leading career advice agency in the U.S. The experimental treatment involves highlighting a diversity metric to jobseekers. Studying 267,494 unique jobseekers, we find that disclosing diversity scores in job postings increases the click-through rate of jobseekers for firms with higher diversity scores. These effects are more pronounced for female and entry-level jobseekers. We estimate that jobseekers update their willingness to pay (WTP) for a firm’s diversity by $1,463 when faced with a 10% increase in diversity scores relative to the interquartile range. We conduct a follow-up survey with jobseekers to better understand why diversity information was useful to them. Finally, we document that firms in industries characterized by higher jobseeker responsiveness to diversity information tend to voluntarily disclosure diversity metrics in their 10-Ks under new SEC disclosure requirements. That is, disclosure choices partially reflect ‘jobseeker materiality.’ Overall, our findings generate important insights regarding jobseekers’ demand for diversity information

Do Jobseekers Value Diversity Information? Evidence from a Field Experiment

We examine how information about the diversity of a potential employer’s workforce affects individuals’ job-seeking behavior. We embed a field experiment in job recommendation emails sent from a leading career advice agency in the U.S. The experimental treatment involves highlighting a diversity metric to jobseekers. Our results indicate that disclosing diversity scores in job postings increases the click-through rates of jobseekers for firms with higher diversity scores, with such effects varying across jobseeker demographics. A follow-up survey provides some evidence on the potential explanations for why jobseekers value diversity information. We further examine how jobseekers’ preferences for diversity relate to disclosure choices under the U.S. SEC Human Capital Disclosure requirement. We find that firms in industries characterized by higher jobseeker responsiveness to diversity information tend to voluntarily disclose diversity metrics in their 10-Ks under these new disclosure requirements

A plain English measure of financial reporting readability

We propose a new measure of readability, the Bog Index, which captures the plain English attributes of disclosure (e.g., active voice, fewer hidden verbs, etc.). We validate this measure using a series of controlled experiments and an archival-based regulatory intervention to prospectus filing readability. We also demonstrate the importance of understanding the underlying drivers of quantity-based measures of readability. In particular, we caution researchers that a vast amount of the variation in Form 10-K file size over time is driven by the inclusion of content unrelated to the underlying text in the 10-K (e.g., HTML, XML, PDFs)